Salinas Valley Memorial has vastly different options in Natividad, HCA

Sell to the largest for-profit health care organization in the world, or merge two local hospitals to form a unified, independent public health care system in the county?

Those vastly different visions appear to be the choice facing Salinas Valley Memorial Hospital officials as they consider their remaining affiliation options and the public hospital's future.

On Wednesday night, the Salinas Valley Memorial board chose to proceed with the affiliation process and enter the "due diligence" phase with proposals from Hospital Corporation of America, also known as HCA Healthcare, and Natividad Medical Center in Salinas.

The two organizations emerged from a list of six that responded to Salinas Valley Memorial's request for affiliation proposals issued earlier this year, as well as another firm that submitted a proposal just this week.

The hospital and the community will vet the two remaining potential partners over the next two months. Under the current timeline, which is subject to revision, public town hall meetings are to be scheduled in April and May, with final proposals expected in June. If the board chooses to proceed and selects a preferred proposal, a final agreement would be negotiated, with a public vote to follow in the fall.

HCA's vast empire

During oral presentations to the board last month, the two organizations made markedly distinct pitches.

Bryan Rogers, president of HCA's Far West division, touted the vast resources of the Nashville, Tenn., firm, which owns 163 hospitals in 20 states, has holdings in the United Kingdom and boasts $30 billion in annual revenue.

Founded in 1968, the company has 192,000 employees nationwide, including 35,000 doctors, and racked up 7.5 million patient days in its hospitals last year.

Among its holdings are five hospitals in California, including Regional Medical Center and Good Samaritan Hospital in San Jose.

Rogers told the board that his firm could offer unique access to capital investment, the advantage of centralized purchasing and contracting services, and a company-wide commitment.

As proof of HCA's commitment to capital improvements, Rogers said Regional Medical Center had been essentially rebuilt and that his firm invested more than $200 million in Good Samaritan. In all, he said, the company spends about $1.3 billion a year on capital upgrades for its hospitals.

Salinas Valley Memorial officials have said constructing a new hospital building to meet state seismic standards by 2030 is a key consideration of any affiliation proposal.

Under HCA, Salinas Valley Memorial would have an appointed board in charge of medical and policy-related issues, while financial matters would be handled by corporate management.

Rogers acknowledged early in his presentation that HCA paid a huge fine, estimated at $1.7 billion, as part of a settlement with the government over alleged Medicare fraud 15 years ago. He said the incident resulted in major changes to the firm.

To demonstrate the company's commitment to its people, Rogers showed a video of HCA's efforts to evacuate patients and employees from Hurricane Katrina-devastated Tulane Hospital in New Orleans, which he called the largest private airlift operation in the nation's history.

Community priorities

Natividad CEO Harry Weis pitched the "once-in-a-lifetime opportunity" to create a new, locally owned and controlled public hospital authority that would combine the strengths of both hospitals and benefit the community at large.

Weis said the safety-net hospital's enhanced government reimbursement and Salinas Valley Memorial's ability to collect public tax dollars offers access to "tens of millions of dollars" in capital that remote for-profit entities can't match.

He said the public authority board would be appointed by the Board of Supervisors and the Salinas Valley Memorial district's elected board, preserving local control. However, he said the authority board would also be fully empowered to run the authority as it saw fit.

"From a strategic perspective, this proposal seeks to take advantage of the strengths of two different organizations," Weis said.

While Weis called HCA a "wonderful company," he said a for-profit corporation simply has different priorities than a locally run authority would.

He said a new public authority would work to the benefit of the area's economy and seek collaboration on efforts to eliminate redundant services to share available health care funding. The arrival of a for-profit entity, by contrast, would create "intense competition" among area hospitals and health care providers that would lead to "inflationary pressures" on costs, he said.

Weis said Natividad offers a "lifelong commitment" that for-profits won't, and noted that HCA has sold off more than half of its California hospitals in recent years.

But Good Samaritan vice president Leslie Kelsay said HCA does make "long-term commitments," such as its substantial investments in the San Jose-area hospital, that indicate it is planning to stay for a while.

Kelsay said there has been no evidence of a "medical equipment arms race" in San Jose since HCA arrived, as seen in other communities, and that the company doesn't believe in such competition.

She warned that no one should presume to predict what the future of health care will be.

Earlier collaboration

Natividad and Salinas Valley Memorial have collaborated before, with the latter offering $8 million to help pay for a stunningly successful consultant-led turnaround effort at Natividad just six years ago. Natividad, which recorded a $20 million loss in 2006, has been riding a wave of financial success, including escalating revenue and earnings that reached a record $32.3 million last year.

But the hospital has had more recent struggles. A survey by the Centers for Medicare and Medicaid Services after a December inspection found a variety of deficiencies at the hospital, including insufficient medication security, dosing and administration; issues with medical records and patient care orders; unacceptable nutritional, dietary and food preparation practices; and building and equipment safety concerns.

Weis said investigators made a return visit March 23, which was confirmed by a CMS official, and Weis said their follow-up report was positive.

A merger of the two local hospitals has drawn some community support, including the Board of Supervisors and Assemblyman Luis Alejo, D-Watsonville, who sent a recent letter to the Salinas Valley Memorial board backing the concept.

Law not violated

During Wednesday's meeting, the Salinas Valley Memorial board split a previously scheduled closed session and conducted the affiliation-related portion earlier than planned, which it is entitled to do without violating the state's open meeting laws, according to both the hospital district's counsel and open government expert Terry Francke of Californians Aware.

After the session, the board indicated the late-arriving proposal did not meet its affiliation criteria.